Interview: Travis Gomez on the Credit Card Company Crackdown

Whenever I have questions about an area of the industry in which I am not an expert, I seek out the advice of certain people I regard as the "guru" of that area. Starting this year, I intend to expose my readers to these gurus via interviews whenever there is a important and timely topic that warrants it.

For example, when I recently heard a rumor that the major credit card companies were going to crack down on certain DRTV techniques, I turned to Travis Gomez from Cambridge Commerce to find out what was going on. Travis is my go-to guy for payment processing, and he was gracious enough to let me put his comments "on the record."

TSR: I’ve been hearing about a major crackdown by the credit card companies on "free trial" type offers, etc. Can you tell me more?

Travis: In my opinion, this year has started off with a major adjustment to the way merchant processors are evaluating and managing direct-response and Internet-marketing merchants. The focus is on merchants that sell products using free samples or trial-period offers with automatic, recurring billing. This practice is commonly referred to as a "Negative Option" billing and is most widely utilized for selling nutraceutical products such as colon cleansers, teeth whiteners and weight loss products, as well as financial programs like grants, debt relief, and ‘make money at home’ programs.

Urged on by written correspondence from Sen. Jay Rockefeller, D-W.Va., to crack down on cyber fraud, the card associations – Visa, MasterCard, Amex, and Discover – have begun to insist on policies aimed at broadening consumers’ right to know.

TSR: What sort of policies?

Travis: In mid-December, Visa, the Federal Trade Commission (FTC) and the Better Business Bureau promulgated what are likely to become industry standards where the Negative Option is concerned. You can read all about their agreement in this Visa press release.

A Dec. 17 Associated Press article clarified the new policy. A key passage read: “Negative option marketing is not illegal. It's the hidden manner some companies use to get people to agree to the charges that is the problem.” The article then quoted Lois Greisman, an associate director for the FTC: “Those cost disclosures have to be upfront and prominent.”

TSR: What about the other credit card companies? What is their position?

Travis: MasterCard has provided some verbal direction to processors. Below is list of general guidelines that I’ve heard may be implemented. Merchants should start reviewing their marketing practices with their processors to ensure compliance until formal guidelines are issued.

MARKETING COMPLIANCE GUIDELINES

1. Free-Trial. No marketing of the product as free or risk-free.
2. Celebrity Endorsements. Images of celebrities are prohibited from use without express written consent of the entity being published.
3. Product Claims. By law, product claims must be truthful and not misleading. Claims must be substantiated by the formulas used in the product(s) marketed and the clinical research conducted to support it.
4. Marketing Blogs. Blogs utilized to promote or sell products must be honest and accurate of the endorsee, clearly and conspicuously shown as an advertisement or that the story is fictional in the event the blog is fake and “news” sites must clearly alert the consumer that it is advertorial.
5. Timers/False Counters. Generating a false sense of urgency through timers, limited time offers and product counters are prohibited unless the customer’s ability to order the product is genuinely taken away.

BILLING PRACTICES GUIDELINES

1. Disclosure of Terms. The negative option renewal must be clearly disclosed in at least size 12 font and must be located between the top and bottom edges of the “call to action” button.
2. Terms and Conditions. T&C’s must be FTC compliant and contain all required information and disclosures. Some helpful information can be found on the FTC website here.
3. Timing of Billing. Billing cycles must not bill the customer the “full” product price twice in a 30-day period (e.g. Day 1 trial/Day 15 full price if not cancelled cannot bill next full price on Day 30, must wait until Day 45).
4. Rules for Up-sells. Forced and hidden up-sells are strictly prohibited. Up-sells with recurring charges (even if customer opts-in) are prohibited. One-time up-sells are allowed providing the price point is clearly disclosed and the consumer confirms the transaction.
5. Refund Requirements. Merchants must not require customers to return their free-trial sample to receive a refund or cancel the subscription.

OPERATIONAL BEST PRACTICES

1. Access to Customer Service. Customers must have multiple means for reaching customer support and cancelling orders (phone, e-mail, live chat).
2. Hours of Operation. Customer support must operate within reasonable hours in the region the product was sold. High volume products must have 24/7 customer support available.
3. Invoice Quality. The customer service numbers and transaction billing information must be clearly disclosed on the invoice that is included with the product delivery.
4. Order Fulfillment. The product must be shipped within 48 hours (two business days) of the charge being applied to the customer and should include tracking information.
5. Affiliate Network Responsibilities. Affiliate networks must keep the offers private to ensure they can account for who and how the offers are being run.

TSR: How much of this is new or different from the guidelines already being followed in the industry? Any key changes stand out?

Travis: The official "MasterCard Rules" have not been formally changed or modified. However, MasterCard has suggested that banks and processors immediately require their merchants to be in compliance with these guidelines in an effort to ensure that the existing rules are not being violated. Specific rules cited as commonly being violated are:

• Section 3.8.4 - Integrity of Brand and Network
• Section 5.4 - Merchant Identification and Responsibility for Transactions
• Section 5.9.7- Illegal or Brand-Damaging Transactions (hidden terms)
• Section 5.10.1 - Security Rules (sharing cardholder data/cross-selling)

TSR: So is this the end of risk-free offers, countdown timers and 14-day trials? What happens if a company ignores these guidelines?

Travis: Not likely. Marketers always have been creative and will continue to be creative in the approach they take to selling products. I believe new offers and iterations or hybrids of these models will find an outlet. At the heart of this is an attempt by the card associations to address and correct overly aggressive marketing tactics. I believe this is necessary to enhance the overall consumer experience and confidence in these types of purchases.

The penalties being enforced for violations are as high as $100,000 for each incident of non-compliance. Since banks are by nature risk adverse, many have completely dropped all merchants in this space. A bit of an overreaction, but most simply don't have the resources to ensure every single merchant is in compliance. They would rather lose the business than risk the fines.